FUNDAMENTALS OF

ACCOUNTANCY,
BUSINESS and
MANAGEMENT I
 Course Description

This is an introductory course in accounting,

business, and management data analysis that will
develop students’ appreciation of accounting as a
language of business and an understanding of basic
accounting concepts and principles that will help
them analyze business transactions.
 Fundamentals
of Accounting 1
SESSION 1

INTRODUCTION TO ACCOUNTING

Desired Learning Outcomes

 Define Accounting
 Describe the nature of
accounting
 Explain the functions of
accounting business
 Narrate the history / origin of
accounting
Define
Accounting?

“Accounting is the process of IDENTIFYING, RECORDING,

and COMMUNICATING economic events of an organization
to interested users.” (Weygandt, J. et. al)
IDENTIFYING – this involves selecting economic events that are relevant to a particular
business transaction The economic events of an organization are referred to as
transactions.
Examples of economic events or transactions - In a bakery business:
• Sales of bread and other bakery products
• Purchases of flour that will be used for baking
• purchases of trucks needed to deliver the products

RECORDING – this involves keeping a chronological diary of events that are measured
in pesos. The diary referred to in the definition is the journals and ledgers which will be
discussed in future chapters.

COMMUNICATING – occurs through the preparation and distribution of financial and

other accounting reports.

What is the Nature of Accounting?

According to Accounting Theory (http://accountingtheory.weebly.com/nature-and-
scope-of-accounting.html):

“Accounting is a systematic recording of financial

transactions and the presentation of the related
information to appropriate persons.” Based on this
definition we can derive the following basic features
of accounting:

• Accounting is a service activity. Accounting provides assistance to decision

makers by providing them financial reports that will guide them in coming up with sound
decisions.

• Accounting is a process: A process refers to the method of performing any specific

job step by step according to the objectives or targets. Accounting is identified as a
process, as it performs the specific task of collecting, processing and communicating
financial information. In doing so, it follows some definite steps like the collection,
recording, classification, summarization, finalization, and reporting of financial data.

• Accounting is both an art and a discipline. Accounting is the art of recording,

classifying, summarizing and finalizing financial data. The word ‘art’ refers to the way
something is performed. It is behavioral knowledge involving a certain creativity and skill
to help us attain some specific objectives. Accounting is a systematic method consisting
of definite techniques and its proper application requires skill and expertise. So by
nature, accounting is an art. And because it follows certain standards and professional
ethics, it is also a discipline.

• Accounting deals with financial information and transactions: Accounting records

financial transactions and data, classifies these and finalizes their results given for a
specified period of time, as needed by their users. At every stage, from start to finish,
accounting deals with financial information and financial information only. It does not
deal with non-monetary or non-financial aspects of such information.

• Accounting is an information system: Accounting is recognized and characterized

as a storehouse of information. As a service function, it collects processes and
communicates financial information of any entity. This discipline of knowledge has
evolved to meet the need for financial information as required by various interested
groups.

Functions of Accounting
- Accounting is the means by which business information is communicated to business
owners and stakeholders. The role of accounting in business is to provide information
for managers and owners to use in operating the business. In addition, accounting
information allows business owners to assess the efficiency and effectiveness of their
business operations.

- Prepared accounting reports can be compared with 3 industry standards or to a

leading competitor to determine how the business is doing. Business owners may also
use historical financial accounting statements to create trends for analyzing and
forecasting future sales.
History of Accounting
Accounting is as old as civilization itself. It has evolved in response to various
social and economic needs of men. Accounting started as a simple recording of
repetitive exchanges. The history of accounting is often seen as indistinguishable from
the history of finance and business.

Following is the evolution of accounting:

• The Cradle of Civilization

Around 3600 B.C., record-keeping was already common from Mesopotamia, China and
India to Central and South America. The oldest evidence of this practice was the “clay
tablet” of Mesopotamia which dealt with commercial transactions at the time such as
listing of accounts receivable and accounts payable.
• 14th Century - Double-Entry Bookkeeping
The most important event in accounting history is generally considered to be the
dissemination of double entry bookkeeping by Luca Pacioli (‘The Father of Accounting’)
in 14th century Italy. Pacioli was much revered in his day, and was a friend and
contemporary of Leonardo da Vinci. The Italians of the 14th to 16th centuries are widely
acknowledged as the fathers of modern accounting and were the first to commonly use
Arabic numerals, rather than Roman, for tracking business accounts. Luca Pacioli wrote
Summa de Arithmetica, the first book published that contained a detailed chapter on
double-entry bookkeeping.
• French Revolution (1700s)
The thorough study of accounting and development of accounting theory began during
this period. Social upheavals affecting government, finances, laws, customs and
business had greatly influenced the development of accounting.
• The Industrial Revolution (1760-1830)
Mass production and the great importance of fixed assets were given attention during
this period.
• 19th Century – The Beginnings of Modern Accounting in Europe and America
The modern, formal accounting profession emerged in Scotland in 1854 when Queen
Victoria granted a Royal Charter to the Institute of Accountants in Glasgow, creating the
profession of the Chartered Accountant (CA). In the late 1800s, chartered accountants
from Scotland and Britain came to the U.S. to audit British investments. Some of these
accountants stayed in the U.S., setting up accounting practices and becoming the
origins of several U.S. accounting firms. The first national U.S. accounting society was
set up in 1887. The American Association of Public Accountants was the forerunner to
the current American Institute of Certified Public Accountants (AICPA). In this period
rapid changes in accounting practice and reports were made. Accounting standards to
be observed by accounting professionals were promulgated. Notable practices such as
mergers, acquisitions and growth of multinational corporations were developed. A
merger is when one company takes over all the operations of another business entity
resulting in the dissolution of another business. Businesses expanded by acquiring
other companies. These types of transactions have challenged accounting
professionals to develop new standards that will address accounting issues related to
these business combinations.

• The Present - The Development of Modern Accounting Standards and Commerce

The accounting profession in the 20th century developed around state requirements for
financial statement audits. Beyond the industry's self-regulation, the government also
sets accounting standards, through laws and agencies such as the Securities and
Exchange Commission (SEC). As economies worldwide continued to globalize,
accounting regulatory bodies required accounting practitioners to observe International
Accounting Standards. This is to assure transparency and reliability, and to obtain
greater confidence on accounting information used by global investors. Nowadays,
investors seek investment opportunities all over the world. To remain competitive,
businesses everywhere feel the need to operate globally. The trend now for accounting
professionals is to observe one single set of global accounting standards in order to
have greater transparency and comparability of financial data across borders.